2/14/2005 @ 6:00AM

Death To Spam

Last May
Shinya
Akamine
Shinya Akamine
received an unusual compliment.

After testifying at a U.S. Senate hearing on the effects of a new federal law regulating unwanted e-mail, he was approached by a fellow witness who wanted his business card. It was
Ronald
Scelson
Ronald Scelson
, aka the “Cajun Spammer,” who was known for bragging in newspaper interviews that he could send 30 million messages per day from a rented underground nuclear fallout shelter in Louisiana.

“At first I was wondering if I should be scared to give him my business card,” Akamine says. “Then he said, ‘I have to hand it to you guys, I can beat all the spam filters out there, but I can’t beat yours.’ ”

For Akamine, chairman of , a private e-mail services company based in Redwood City, Calif., it was just one of many confirmations that the business he and
Scott
Petry
Scott Petry
co-founded in 1999 was having the impact they had wanted.

In a most recent survey, the Radicati Group, a Palo Alto, Calif., research outfit, found that 49% of all the e-mail sent globally in 2004 constituted unwanted spam. It doesn’t look as if 2005 will be any better: Radicati analyst Teney Takahashi reckons that 73% of the mail consumers receive will be spam, as will be 48% of that received by businesses.

On average, each of the world’s 683 million e-mail users will receive about 70 unwanted messages every day, or 25,300 for all of 2005. One estimate by Ferris Research, another research organization, pegged the spam-related cost in information technology resources to U.S. businesses at $10 billion in 2003.

This is where Postini comes into the picture. It operates ten data centers around the U.S. that act like burly security guards at an exclusive nightspot. Postini lets only those messages from servers on its “A list” get through their system. Mail from addresses and domains with a history of bad behavior are met with restrictions or get barred entirely.

With a few tweaks to its e-mail servers, a client company’s e-mail flows directly to Postini, where it’s scrubbed of the irritating and the offensive, and then directed to the corporate mail server, where it gets delivered as usual. Clients have no ongoing maintenance or upgrades to worry about as long as they keep up their subscription payments.

Postini’s approach toward spam was a radical idea five years ago, when most companies seeking to protect e-mail in-boxes were focused on building expensive software or hardware products that get installed directly on customers’ systems. Many spam-fighting services still operate this way.

“Back then we had to grope around for a way to explain what we wanted to do,” Akamine says. “They didn’t get the idea that you could sell spam protection as a service.” Still, Postini managed to land funding from big names like
Sun Microsystems
, August Capital, Mobius Venture Capital and Bessemer Venture Partners.

“There was a brutal period where we would literally sit in the conference room and manage cash,” says Akamine, 41, who was until late last year Postini’s chief executive officer. “I had vice presidents who said they had run out of copier paper.” It got so dicey that Postini put up a temporary wall in its headquarters so it could rent out half its building.

That changed in December 1999 when Postini landed its first big customer, USOnline, a network of small Internet service providers based in Wenatchee, Wash. USOnline wanted Postini to protect 100,000 mailboxes. At the time, many companies were giving away their services for free in hopes of building up a base of users they could charge later.

“I’m not proud of what we charged them. It was something like 50 cents a mailbox, and we weren’t going to charge them at all until the last minute, but it later turned out to be a critical decision,” Akamine says. “We’ve never done a free deal since then.”

Radical too were the deals that Postini didn’t do. Right before landing the contract with USOnline, negotiations collapsed with a large, publicly held financial services company, whose name Akamine does not want to disclose. The company wanted Postini to pay it for the right to name it as a customer in marketing messages. “We lost a venture capital investor over that one. I’m still friends with that VC, and today he says he made a mistake,” Akamine says.

Mistake indeed. Postini is now the secret anti-spam weapon of choice of more than 4,200 companies, of which nearly half came on board last year. It now services 6 million end users, including workers at
Merrill Lynch
,
Circuit City
,
Rayovac
and–get this–
Hormel Foods
, the company that makes Spam, the canned meat product.

Today Postini processes 2.5 billion e-mail messages per week, which is more than most large Internet service providers. Petry, Postini’s senior vice president, says that in five years of operation, 97% of its customers renew their contracts after the first year. “Companies come to us and never leave,” he says.

Akamine won’t disclose financials, but in the past has said Postini’s revenue was comparable to that of
Brightmail
, a rival that had planned to go public before security software giant
Symantec
gobbled it up last year for $300 million. In its S1 filing with the U.S. Securities and Exchange Commission, Brightmail had reported sales of $26 million for the year ended Jan. 31, 2004. Akamine says Positini’s sales were in the same vicinity at the time. Still, Postini has said that in 2004 its sales tripled over the previous year, putting sales in the range of $60 million to $70 million.

The chances of Postini going public? Akamine, who holds three degrees–including a Ph.D.–in electrical engineering from Stanford University–says it’s not a priority.

“We’re profitable, and we’re growing,” he says. “We didn’t get that way by following the crowd.”